Does Byju Ravindran Remind You of Ashneer Grover? Overfunding Lessons

In the startup ecosystem, raising capital has long been considered a badge of honor. Conventional wisdom urges founders to secure as much venture capital (VC) as possible, as market conditions can change overnight. This advice proved crucial in early 2022, when a sudden funding winter struck startups worldwide. Companies that had stockpiled funds were able to weather the storm, while those with limited capital struggled as investors reduced their investments.

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However, too much capital isn't always a blessing. The cases of Byju’s and BharatPe demonstrate how overfunding can foster unsustainable business practices, leading to turmoil.

The Trouble with Excess Capital

When startups are flush with cash, the early-stage entrepreneurship frugality often disappears. Instead of careful, necessity-driven decision-making, founders may engage in reckless spending. An abundance of capital can lead to the following traps:

1. The Chase for Vanity Metrics Instead of building core competencies, startups may prioritize scaling at any cost, focusing on metrics like user growth or Gross Merchandise Value (GMV) rather than profitability.

2. Hiring Spree Gone Wrong Founders may overhire, creating bloated structures that eventually require painful layoffs when revenues fall short of expectations.

Ambitious Acquisitions Many companies, flush with VC funds, pursue aggressive acquisition strategies. While these deals often generate media buzz, they can distract from the core business and lead to inefficiencies.

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The primary purpose of venture capital is to build profitable businesses quickly. However, with too much money, companies sometimes burn through cash without a sustainable plan, hoping that more investors will follow with even larger checks. When the market turns, as it did in 2022, companies that depended on continuous funding struggle to survive.

Byju's: From Ed-Tech Star to Financial Mess

Once the world’s most valuable ed-tech startup, Byju’s is a prime example of how overfunding can lead to mismanagement. Bolstered by billions in funding, the company embarked on an aggressive acquisition spree, acquiring WhiteHat Jr. and Aakash Educational Services to expand its offerings.

However, in its pursuit of scale and inflated valuations, Byju’s lost sight of profitability. Operational inefficiencies, high marketing costs, and questionable business practices exposed cracks in its foundation. As financial losses mounted, the company faced regulatory scrutiny, lawsuits from creditors, and layoffs.

• • • FY23 Losses: ₹8,553 crore, surpassing the previous year’s losses.
    • Valuation Collapse: Once valued at $22 billion, BlackRock recently marked its valuation down to $1 billion, with Prosus valuing it below $3 billion.

BharatPe: A Startup Torn by Internal Strife

BharatPe’s rapid rise, fueled by investor funds, also came with serious governance challenges. After raising millions, the fintech company became embroiled in controversies—ranging from misuse of funds to allegations of financial misconduct involving co-founder Ashneer Grover.

With excessive capital at hand, the focus shifted from disciplined growth to unchecked expansion. The lack of governance and internal strife took a toll on the company’s reputation. Although BharatPe has managed to improve its financials, the damage to its brand lingers.

• • • FY24 Performance: Revenue increased by 39%, and losses were reduced by 50%.

Despite these improvements, BharatPe serves as a reminder that without strong governance, even well-funded startups can falter.

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The Frugality Advantage: Learning from Zoho

In contrast, startups built during times of scarcity often emerge stronger. When capital is limited, founders must prioritize resources and focus on creating sustainable, scalable businesses. A prime example is Zoho, which has grown with minimal external funding and remained profitable in a highly competitive market.

Zoho’s frugal approach allowed it to avoid the pressures of meeting investor expectations for rapid growth. Instead, it focused on sustainable operations, customer satisfaction, and long-term value creation. This strategy enabled Zoho to thrive without burning through cash.

Valuations and the Growth Trap

For many startups, valuations are directly linked to revenue growth, creating enormous pressure to scale at all costs. Founders are encouraged to burn cash for rapid expansion, often sidelining profitability. Investors, too, are complicit in promoting this growth-at-all-costs culture, pushing companies toward financial instability.

When market conditions shift or growth slows, the consequences are severe. Companies that relied heavily on continuous capital inflows may find themselves scrambling to survive, often at the cost of layoffs, restructuring, and damaged reputations.

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A Sustainable Approach: Less Can Be More

The best businesses don’t rely on capital abundance. Instead, they thrive on judicious resource management and a relentless focus on value creation. Excessive funding can cloud a company’s mission, leading to poor decisions and strategic drift. Founders must ask themselves: “Do we really need this much money?”

Before accepting large investments, it’s critical to evaluate whether additional capital aligns with the company's long-term goals. Sustainable businesses are built not on endless funding but on disciplined growth, solid governance, and meaningful value creation.

The Real Question Founders Should Ask

Capital is essential, but too much of it can be toxic. Founders need to strike a balance—raising enough to grow without losing focus on sustainability. Startups that are built during challenging times, with limited access to capital, often develop resilience and innovation that help them thrive.

So, if you’re a founder fortunate enough to secure a large investment, ask yourself: “Do I really need this much money, or am I better off building something sustainable with less?” The answer to that question could determine whether your company thrives—or becomes another cautionary tale in the startup graveyard.

Disclaimer: This article draws inspiration from a LinkedIn post by Pushkar Singh, founder of Tremis Capital, who mentors founders on storytelling and fundraising strategies.